Tesla-SolarCity Deals Kicks Off a Flurry of Action
The start of August gave investors quite a bit to chew on, with more than a few companies announcing multi-billion dollar deals. We'll start with Tesla Motors (NASDAQ:TSLA), which announced its formal decision to acquire SolarCity (SCTY) for $2.6 billion in an all-stock deal.
Back in late June, Tesla originally announced its intentions to acquire SolarCity "for $26.50 to $28.50 per share," drawing complaints of lax corporate governance regulations. Tesla CEO Elon Musk is the largest individual shareholder in each company.
Anyhow, the two companies have officially come to terms on the deal. SolarCity will have a 45-day "go-shop" period, where it can solicit offers from other parties. Shareholders will receive 0.11 shares of Tesla for each share of SolarCity they hold.
My assumption is that, barring an astronomically high price from another bidder (doubtful), Musk will be willing to acquire SolarCity at a higher price should he have to. It is in his Master Plan, after all. While this may or may not be true (we won't know until it happens), it seems somewhat unlikely that another suitor will swoop in to buy SolarCity anyway.
As one could expect, the Seeking Alpha community seems fairly split on the deal. On the one hand, bulls are looking for synergies - "just" $150 million in the first year - and big potential in the out-years. Rightfully so, the bears are focused on the accounting side of things, arguing that neither company is thriving economically, and the current deal will only strain things - and dilute shareholders - even more.
Uber, Didi Chuxing Go From Foe to Friend
Considering the massive valuation commanded by the San Francisco-based ride-hailing app Uber (UBER), it would have made sense to lead the newsletter with its new deal with Didi Chuxing (DIDI), its China-based competitor. However, given that neither company is a publicly-traded entity, well, we put it at #2. Plus, we're hoping that readers made it at least this far, so the lead wouldn't matter as much.
Just last week, the Chinese government had granted permission for the use of ride-hailing applications within the country. The regulations surrounding it were, to the relief of many, much less stringent than some had expected. Still, the formal regulations were the so-called green light for the companies - even though they had already been operating in the country up until that point.
However, the two leaders in the country took on a far different approach: why fight when they can be friends?
Rather than continue sparring in a not-so-friendly price war, the two companies are teaming up to take on one of the world's largest markets. Uber's China operations will now become part of Didi Chuxing. In exchange, Uber will receive a $1 billion investment from Didi, plus a 17.7% stake in the company, (the other 2.3% will go to other investors that were involved in Uber China).
Before the deal, Didi was previously valued at $28 billion. With the addition of Uber China, the combined new entity will be valued at $36 billion, according to the Wall Street Journal. Other sources have the new entity being valued at $35 billion.
This is an important step towards profitability. With China being such a large and important market, it made no sense for either company to be at each other's throat, all the while losing money. Uber has previously stated that it has many profitable markets in the developed world - including in North America, Australia and Europe. However, the company was reportedly losing more than $1 billion per year in China.
That's expected to change, freeing up cash flow and bolstering the bottom line. Assuming that an IPO comes at some point in the future, that will surely bolster its prospects and make it that much more in demand.
Separately, Uber plans to invest $500 million in an effort to develop its own mapping project, weaning itself off of Google Maps. Let's just hope it goes more smoothly than when Apple (NASDAQ:AAPL) broke away from the service.
But Wait, There's More
The all-cash deal takes Fleetmatics out at $60 per share, just shy of its 52-week high at $62.86. It's the second acquisition in as many months for Verizon involving a fleet-management software and solutions company.
"The powerful combination of products and services, software platforms, robust customer bases, domain expertise and experience, and talented and passionate teams among Fleetmatics, the recently-acquired Telogis, and Verizon Telematics will position the combined companies to become a leading provider of fleet and mobile workforce management solutions globally."
And from Jim Travers, chairman and CEO of Fleetmatics:
"Verizon and Fleetmatics share a vision that the SaaS-based fleet management solution market is extraordinarily large, lightly penetrated, global and fragmented which can best be attacked together with a world class product offering and the largest distribution channel in the industry."
Verizon has shown an obvious desire to, not necessarily overhaul its exceptional business, but perhaps evolve from being more than simply a phone service provider. While its acquisition of Yahoo shows that willingness, it's not necessarily clear how it will turn that ship around either. Perhaps paired with its AOL purchase last year, it will be able to do better than some investors think.
Still, the fleet management aspect seems interesting at first glance as well. The company will bring in new customers and have an additional service to tack on to its business. While the deal will no doubt help fuel Verizon's growth in the years ahead, there's questions as to how much of a needle mover it will be, given Verizon's $225 billion market cap. For comparison sake, the company brought in revenues of $30.5 billion last quarter, while Fleetmatics brought in just $78.9 million - with an "M."
Perhaps after seeing AT&T's (NYSE:T) purchase and subsequent growth from its DirecTV acquisition (although that purchase was much larger), Verizon felt compelled to move into other arenas as well.
For the most part, investors in Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) have cheered CFO Ruth Porat and her ability to reel in the company's - at times - outlandish spending on taking multiple "bets" for potential moonshots.
Without stunting growth, she's been able to keep a tighter leash on spending, in turn bolstering the bottom line, all the while revenue growth remains quite impressive, standing at 21.3% in the most recent quarter.
So we can only assume she green-lighted (or was at least generally aware) of the company's partnership with GlaxoSmithKline (NYSE:GSK) to "develop bioelectronic medicines, or treatments that use miniature electric devices to modify how impulses are transmitted around the nervous system."
The duo's joint effort, known as Galvani Bioelectronics, will receive upwards of £540 million, or roughly $714 million over the course of seven years from the two companies. That's assuming it's able to hit certain milestones along the way.
While this may come as a shock to some readers (no pun intended), I myself am no bioelectronics guru. However, with Glaxo controlling 55% of the new company, as it stands, Google will be funding a little more than $300 million over the next seven years. While not exactly pennies per se, it's also not very much to a company like Google.
Investors should view this development as a low-risk, high-return type of situation, although at this point, it's too early to say what the upside would or could be.
We previously discussed the PowerShares QQQ Trust ETF (NASDAQ:QQQ) being on the cusp of hitting new 52-week highs. Well, on Monday the ETF finally did so. Big tech - its top five holdings include Apple, Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) Alphabet and Amazon (NASDAQ:AMZN) - is helping to drive the move.
After enjoying a successful IPO on Friday, shares of Talend (NASDAQ:TLND) held its gains from the prior session, climbing another 2% on Monday to $26.02. After being expected to price between $15 and $17, the IPO was priced at $18, before opening up north of $27.
Twitter (NYSE:TWTR) launched another streaming partnership plan, this time with Warner Bros. and BuzzFeed, to live-stream the "Suicide Squad" premiere in New York City. Truth be told, I find Twitter's streaming announcement newsworthy, but not worthy enough for a full write-up. The company, almost daily it feels like, continues to announce more and more deals.
The plan, management hopes, is that it will spur not only user growth in the coming quarters, but user engagement as well. This could (and probably should) make ad placements more valuable, assuming the company puts the right ads in front of the right people. That's certainly an advantage that Facebook has, given all of the data it has on its users. Twitter, for its part, won't even require users to log in to be a part of the streaming action.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.